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Analysis and Prediction:

Date of publication: August 20, 2018 | Author: Tim Clayton

Last Week’s Summary

Weekly Review - Financial world news


US retail sales increased 0.5% for July, above market expectations, maintaining confidence surrounding the growth outlook, even though there was a downward revision to June’s data.

Business surveys were mixed amid regional divergence, although evidence overall suggested that firm growth was likely with on-going upward pressure on prices.

Overall confidence in the US growth outlook remained firm, although market attention was focussed elsewhere.

Turkish fears ease slightly

The economic crisis in Turkey continued to dominate market attention for much of the week as the lira declined sharply in currency markets.  As Turkish fears intensified, there was a wider impact on global markets.

Fears over losses for the European banking sector undermined the Euro and the dollar gained support as investors looked to investing the security of the US currency and Treasuries.

The Turkish lira recovered some ground during the week as immediate market fears subsided. In this environment, the Euro regained some ground.

Risk trends dominate

Trends in risk appetite continued to have an important impact on major currencies during the week with China an important focus as well as Turkey. When fear dominated, there was strong demand for the Japanese yen and Swiss franc.

The US and China announced that talks would be held on August 22-23rd with the aim of reaching a deal by November. The rhetoric boosted confidence with defensive demand for Swiss and Japanese currencies fading slightly as the US dollar also lost ground.


UK economic data overall did not have a major impact with a mixed set of releases. Unemployment declined to a 45-year low off 4.0%, although average earnings growth eased slightly to 2.4% from 2.5%.

The CPI inflation rate increased to 2.5% from 2.4% with core inflation at 1.9%. Retail sales increase 0.7% for July to give a 3.5% annual increase.

Although there was slightly greater optimism surrounding the UK economy, market confidence remained fragile.

Brexit concerns continued to hamper Sterling sentiment even with a lack of substantive events. Underlying tensions continued to simmer during the European holiday season with politicians braced for serious manoeuvring once the holiday season ends.


The Euro-zone data releases suggested resilience in German business confidence while there was upward revision to 0.4% for second-quarter GDP growth from the flash reading of 0.3%..


Commodity currencies were influenced strongly by trends in risk appetite. There were sharp losses as fears intensified with the Australian dollar declining to 19-month lows, although there was a recovery late in the week.

Headline Canadian inflation data was above consensus forecast with an increase in the year-on-year rate to a fresh 6-year high of 3.0% from 2.5% previously.

The Canadian dollar made net gains amid hopes that a NADTA deal would be concluded before the end of August.

The Chinese yuan recovered ground during the week as the Chinese central bank (PBOC) look to increase the cost of selling the Chinese currency which forced traders to cut positions.

Next Week’s Forecast & Events

Weekly forecast - Financial news

Volatility will remain higher

Liquidity will remain at very weak levels during the European holiday period which will maintain the risk of erratic trading conditions and high volatility.

US-China talks in focus

US and Chinese officials are due to hold trade talks on August 22-23rd with the aim of reaching agreement by November. A constructive meeting would underpin risk appetite and limit the scope for defensive demand while a breakdown in talks would trigger fresh US currency demand.

Emerging markets will still be important

Although immediate fears surrounding Turkey have eased it will still be an important focus and other emerging markets will also be monitored closely given the wider impact on sentiment.

Jackson Hole conference in focus

The Kansas City Federal Reserve will hold its annual symposium during the week and will be watched closely.

Although the debate can be academic, markets monitor the event closely because it is attended by key global central bankers.

Usually, the Federal Reserve Chair delivers a speech and the event is often used by central bank officials to signal a potential shift in monetary policy. In this context, there can be a substantial impact on currency markets.

Fed Chair Powell is due to speak on Friday and there are likely to be speeches from other key global members.


The US data releases are unlikely to have a significant impact with existing home sales data on Wednesday and durable goods release on Friday.

Minutes from July’s Federal Reserve policy meeting are due for release on Wednesday and the overall discussion within the committee will be watched closely. The rhetoric on inflation and trade disputes as well as fiscal policy will be important for underlying sentiment.

Federal Reserve Powell’s speech will also be watched closely on Friday for further hints on likely US policy developments.

Markets have priced in over 90% chance that rates will be increased at the September meeting and there will be a sharp impact on the dollar if these expectations shift.


The domestic data releases are unlikely to have a significant impact with government borrowing data due on Tuesday.

Political developments will be important with markets again focussing on Brexit developments as political manoeuvring starts to increase ahead of a crucial period for negotiations.


The latest Euro-zone PMI data releases are due on Thursday and will have a significant impact on sentiment given the potential impact on ECB policy expectations.

Minutes from July’s ECB policy meeting are also due on Thursday with markets looking for the extent of divisions within the policy committee.


NAFTA developments will be important for the Canadian dollar with scope for Canadian currency gains if a deal is announced.

Currency Forecast for Next Week

Currency pair Spot 1-week forecast 1-month forecast
EUR/USD 1.144 1.150 1.160
USD/JPY 110.5 111.5 112.0
EUR/GBP 0.897 0.890 0.880
GBP/EUR 1.115 1.124 1.136
GBP/USD 1.275 1.292 1.318
AUD/USD 0.732 0.735 0.750
USD/CAD 1.306 1.285 1.290
USD/SGD 1.372 1.375 1.365
USD/HKD 7.849 7.850 7.850
NZD/USD 0.664 0.650 0.670
GBP/JPY 140.9 144.0 147.6
GBP/AUD 1.743 1.758 1.758
GBP/NZD 1.922 1.988 1.967
GBP/SGD 1.750 1.777 1.799
GBP/HKD 10.01 10.14 10.35
GBP/CHF 1.269 1.287 1.324


 timTim Clayton is a market analyst with more than 20 years of experience in the financial markets, with particular focus on currencies. Holds an economics degree from University of New York. Writes for multiple publications including and SeekingAlpha so he is on top of all the happening in the world of currencies and macro-economics. 

Information expressed in this article and on as a whole does not constitute as financial advice. If you decide to make any actions based on the information you read, we shall not be held responsible.


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